Profile of an Oil Producer: Venezuela

Posted by admin on June 3, 2009 at 9:31 pm

(image: bc.edu)

by Greg Burt

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The controversial Citgo program, through which the government of Venezuela supplies free or deeply-discounted oil to poor Americans, nearly ended last January amid reports that Venezuela is cash-strapped and some serious belt-tightening measures would soon ensue. As it turned out, the program was extended indefinitely, after intervention by Venezuela’s socialist president, Hugo Chávez Frias.

According to an Associated Press report at the time, “Citgo Petroleum Chief Executive Alejandro Granado said Citgo had found a way to continue paying for oil shipments. ‘This is a big effort,’ Granado said. ‘This is a sacrifice.’”

Chávez has been widely accused of using Venezuela’s oil money to build international power and prestige while casting a bad light on capitalist nations. In 2007, according to the AP, he pledged nearly nine billion dollars in international aid, financing and energy funding. Among those seemingly-altruistic projects, the Citgo program, begun in 2005, has been called a cheap public relations stunt designed to embarrass the US and then-president, George Bush, who Chávez called “the devil.”  But it’s been anything but cheap for Venezuela, so far costing more than 100 million dollars to give free or low-cost heating oil to the citizens of a country who, on average, earn ten times as much as the citizens of Venezuela.

Oil income accounts for more than 90 percent of Venezuela’s export revenue and half the national budget.  With oil prices below sixty dollars a barrel as of May 2009, the minimum figure upon which Venezuela’s one-note economy is pegged, Mr. Chávez probably can’t afford much more in the way of either public relations or altruism.  In spite of his oil giveaway program, Mr. Chávez has been tough on America’s oil interests, not only by nationalizing the holdings of US companies, but also by threatening to raise the price of oil to $300 a barrel, or cut us off entirely if we cross him. But, whether you like Mr. Chávez or not, it has to be pointed out that Venezuela’s oil-related problems didn’t begin with him.

In 1914, the Zumaque Well was discovered near Lake Maracaibo. The British and Dutch, operating as Royal Dutch Shell, were the first in. Over the next few years, Standard Oil, owned by the Rockefeller family, created Creole Petroleum Corporation and began serious development of the well. The Maracaibo region proved to be one of the world’s richest oil resources and by the end of the 1920s, Venezuela was exporting more oil than any other nation.